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Take steps to slash budget deficit, IMF tells Bahrain

Already announce policies will reduce the country's fiscal deficit to 11 percent in 2018, down from 14 percent in 2017

Overall, the IMF projects growth of 3.2 percent in 2018, strengthened by a recovery in oil production, a continuation of a GCC-funded projects and rising refinery and aluminium production capacity.

By Bernd Debusmann Jr

Thu 31 May 2018 10:24 AM

Bahrain must take steps to slash its state budget deficit and bolster its currency, according to the head of an IMF mission to Bahrain.

Speaking after the mission and consultations with Bahraini authorities, Bikas Joshi noted that the government’s previously announced fiscal policies would reduce the country’s fiscal deficit to 11 percent of GDP, compared to 14 percent in 2017 and 18 percent in 2016.

Overall, the IMF projects growth of 3.2 percent in 2018, strengthened by a recovery in oil production, a continuation of a GCC-funded projects and rising refinery and aluminium production capacity.

“Over the medium term, the deficit is projected to remain sizeable, with a rising interest bill as public debt continues to increase,” he said. “Without further measures, non-oil revenue is expected to stagnate and growth to slow.”

Joshi added that “a credibly large fiscal adjustment is a priority.”

“Such a plan should comprise revenue and expenditure measures, while protecting the most vulnerable,” he said. “The implementation of value-added tax, as planned, would be important.”

Other possible measures advocated by Joshi include targeting subsidies and addressing the large wage bill, as well as reforms to strengthen fiscal framework such as by operationalising the debt management office.

“Continued efforts to strengthen the regulation and supervision of the financial sector would bolster the system,” Joshi noted. ‘Fiscal consolidation would support the peg to the US dollar, which continues to provide a clear and credible policy anchor.”